The Australian dollar (AUD) has recently experienced a notable decline against the U.S. dollar (USD), dropping below key technical levels and hitting a one-month low on Monday. This slide has been driven by a combination of broader U.S. dollar strength and several bearish factors that could threaten the gains made between April and July.

Key Drivers Behind the AUD/USD Decline

1. Strengthening U.S. Dollar:
   The U.S. dollar has been on a strong upward trajectory, driven by robust buying pressure. This broad-based strength has placed downward pressure on the AUD/USD pair, causing it to fall below its 55-day moving average (DMA) and the daily cloud top.
2. Impact of Surprise Rate Cuts in China:
   Recent surprise rate cuts in China, which have weakened the yuan, have indirectly impacted the Australian dollar. Given that the AUD often acts as a proxy for the yuan, these rate cuts have added to the bearish sentiment surrounding the AUD. The economic recovery in China, Australia’s largest trading partner, remains fragile, which could lead to expectations of a less restrictive Reserve Bank of Australia (RBA) in response.
3. Commodity Prices Signal Further Downside:
   Commodity prices are also indicating potential further declines for AUD/USD. Iron ore and copper futures hit four-month lows on Monday, reflecting deepening economic struggles in China. As commodities are a significant component of Australia’s exports, weakening prices could exacerbate the bearish outlook for the AUD.

Technical Indicators and Risks

The technical landscape for AUD/USD is showing increasing downside risks:

• Falling Relative Strength Index (RSI): The daily RSI is trending downward, and the monthly RSI has turned lower after diverging from the six-month high set on July 11. These indicators suggest that downward momentum is gaining strength.
• Bearish Monthly Candle Formation: A monthly inverted hammer candle has formed for July. If this pattern remains at the end of the month, it would signal a major bearish reversal.

Upcoming U.S. Data Risks

Several key U.S. economic data releases could further impact AUD/USD:

• Q2 GDP Data: The release of U.S. Q2 GDP figures will be crucial in assessing the overall health of the U.S. economy and could influence U.S. dollar strength.
• Weekly Jobless Claims: Weekly jobless claims data will provide insights into the U.S. labor market, potentially affecting monetary policy expectations.
• June PCE Index: The June Personal Consumption Expenditures (PCE) index, a key inflation measure, could prompt further U.S. rate hikes if it shows stronger-than-expected inflation, thereby supporting the U.S. dollar.

Stronger-than-expected results from these data releases could drive U.S. interest rates and the dollar higher, potentially pushing AUD/USD even lower.

The Australian dollar is currently navigating a challenging environment, with a strong U.S. dollar, weakening commodity prices, and ongoing economic struggles in China contributing to its recent decline. Technical indicators suggest that the downside risks for AUD/USD are increasing, and upcoming U.S. economic data could further influence the pair’s trajectory.